One of today’s most discussed questions in corporate management are about the executives remuneration. How should it work? Should the company directors be free to decide their compensation?

The answers deal with a general matter of power management. In facts, when the executives can choose their remuneration level, they often act to increase it and overpay themselves. This fact directly influences the effective corporate governance, because it creates conflict between the natural behaviour of the executives and the fiduciary duty of the board, related to protect the interests of the company. One possible way to solve this problem is the “Say On Pay” vote, a rule that gives the shareholders the right to vote on the remuneration of executives. In large listed companies, for example, the executives compensation is determined by a special committee that includes board members.

Some experts say that SOP votes are a good solution because they strengthen the relationship between shareholders and the board of directors, stimulating them to fulfil their fiduciary duty. On the other side, some people consider SOP votes to be a counter-productive policy, because they limit the authority of the board of directors and affect effective corporate governance.

On 24th September Sodali, a conflict free international consultancy, released a survey to know what institutional investors think about the “Say-On-Pay” (SOP) vote process. Thirty-five institutions from 10 countries, representing nearly $13 trillion of assets under management, responded to the survey.

Survey result is very interesting. Investors view the SOP vote as a good tool for an effective corporate governance. They want to have power on the executives’ retribution, but a large part of them (54%) also want to vote on general compensation policies rather than on specific elements of compensation. Moreover, 66% of respondents want the vote to be advisory rather than binding, and 77% of investors expressed a strong preference for holding the SOP vote annually.

While the comments submitted indicate a lively debate among institutional investors about the interpretation of SOP votes, the respondents seem to agree each other about the importance of this tool. In facts, the 80% of them rated it very important (4 or 5 on a scale of 1 to 5), especially considering the factor of companies’ financial performance.

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